Chinks in the EU Clouds

published 12 June 2006

The European Union, following two nasty referendum defeats in just three days, is undoubtedly facing a political crisis, says Edward Hadas on Breakingviews.com. But is it facing a financial one too?

Indeed, markets are slightly volatile at the moment. The euro, for example, shed 1% against the dollar following rumours that Germany's finance minister had been part of a conversation that condemned the currency as a "failure". The euro may have made up some ground since then, but the move still shows that the markets are not only "febrile"; they're also overreactingA euro-break up however is unlikely, particularly as it is one of the few EU initiatives that is actually popular. Only 30% of Dutch voters longed for the return of the guilder.

Moreover, despite the current crisis facing EU Commission President Jos Manuel Barroso, there are a number of "chinks in the clouds" which could lead to a sunnier scenario, says Lex in the FT. With German elections due this autumn, and following the "discrediting of the lame-duck French government", a more pro-reform core Europe could evolve. For one, this may lead to better relationships with the UK. And Italy's bulging debt could even force it out of the euro resulting in a "leaner, meaner EU, focused on trade rather than political and social integration".